Kudlow worries about NAFTA

KUDLOW WORRIES ABOUT NAFTA — POLITICO’s Nancy Cook and I spent some time with NEC Director Larry Kudlow in the White House on Friday and discussed a number of topics including how he views the NEC job and trying to be a consensus builder and a generally nice guy in Donald Trump’s free-wheeling and often deeply bruising White House. The full piece is here.

Kudlow “thinks he can steer … Trump’s chaotic White House away from economic disaster by being the nicest guy in the West Wing. Unlike Gary Cohn, his hard-charging predecessor at the helm of the National Economic Council, Kudlow doesn’t yell. He doesn’t have a reputation for knifing policy opponents in the press or badmouthing them to colleagues, as do many aides in the fractious administration.

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“I have opinions, which I will share with the president,” Kudlow told us. “But I don’t keep people out of meetings. It’s not my style. So, I guess you might say I’m lower-keyed. I’m quite respectful of disagreements.”

NAFTA FEAR — But even the highly optimistic Kudlow is worried about NAFTA: “I don’t know if we are going to get a deal. You are talking to the guy who is the optimist and the happy warrior, and as we meet now, I don’t know … I don’t even want to go with the usual Kudlow optimist. I can’t go there.”

ONLY TRUMP CONTROLS THE TRADE PROCESS — More Kudlow: “No one controls the process about trade. We have a group of people, you know who they are. We meet with the president on a regular basis, often several times a week. Not the NEC nor any other group is going to control that process. The guy who controls the process is the president.”

TRUMP’S PUZZLING TWEET — Trump shocked many in the trade world with this tweet on Sunday morning, which appeared to set the stage for a major U.S. concession to the Chinese: “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!”

He then told everyone to keep cool: “China and the United States are working well together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!”

THE BACKSTORY — The U.S. delivered a huge blow to ZTE last month when it banned American companies from selling parts to the smart-phone provider for allegedly violating sanctions against Iran and North Korea. ZTE, which employs around 75,000 people, said it would halt major operations following the ban.

Chinese Vice Premier Liu He raised the issue with the Trump delegation to Beijing but was rebuffed by Commerce Secretary Wilbur Ross whose department instituted the ban, a senior administration official told MM.

This tweet was apparently the result of a direct appeal to Trump by the Chinese ahead of a visit to Washington expected this week by Liu He. Trump is also eager to establish good relations with Chinese President Xi Jinping ahead of the North Korea summit. Not clear what will come of Trump’s tweet or the ZTE ban. But it was a pretty huge move for Trump to suggest the U.S. would back off its action against the telecom company. Read more here.

FIVE PERCENT GDP GROWTH COMING? — Pantheon’s Ian Shepherdson: “Yes, growth could hit 5% in the second quarter. We realize this sounds outlandish, and, to be clear, we are not suggesting for a minute that the trend in GDP growth has accelerated to that pace. If growth is anywhere near 5% in the second quarter, it will be much slower in the third.

“Neither are we suggesting that growth is being boosted to dizzying heights, even temporarily, by the tax cuts and increases in government spending. We see no sign of that. Instead, the second quarter surge story is all about the lingering echoes of the hurricanes last year, and persistent statistical problems in the GDP data.”

REAL TALK — If growth comes anywhere close to 5 percent in the second quarter you can bet you won’t hear anything about the technical factors and data problems from Trump and the GOP. It probably won’t make it into headlines either. Republicans will absolutely shout to the rooftops about such a number and hustle it into their midterm ad campaigns.

It’s going to be hard for Democrats to argue: “But … but … technical factors! Not sustainable! Obama hit 5 percent as well!” They may be right but it probably won’t matter.

** A message from SIFMA: Nationally, seniors lose an estimated $2.9 billion every year in cases of financial exploitation reported by media outlets, while only an estimated 1 in 44 cases is even reported to authorities. Together, we can do more to protect senior investors. Find out how at www.sifma.org/seniors.**

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Victoria Guida on the Treasury Department’s new effort to shed light on opaque shell companies. To get Morning Money every day before 6 a.m., please contact Pro Services at (703) 341-4600 or info@politicopro.com.

DRIVING THE WEEK — Senate Banking has a hearing on Tuesday at 10:00 a.m. on Fed nominees Richard Clarida (vice chair) and Michelle Bowman … House Financial Services subcommittees hold hearing on Wednesday at 10:00 a.m. on SEC oversight and 2:00 p.m. on FinCEN … HFSC Chair Hensarling sits down with me Thursday at 8:30 a.m. in DC … WH officials including Treasury Secretary Steven Mnuchin are in Israel on Monday for the opening of the new U.S. embassy in Jerusalem ..

SCHUMER PUSHES GRUENBERG FOR FDIC VICE CHAIR — POLITICO’s Victoria Guida: “Senate Minority Leader Chuck Schumer (D-N.Y.) has recommended FDIC Chairman Martin Gruenberg to the White House to be nominated as vice chairman of the agency, according to a source familiar with the matter.

“If… Trump nominates him for the No. 2 slot on the FDIC board, it would mean that Gruenberg, a Democrat, would be in a position to shape, and perhaps slow down, efforts by Trump-appointed officials to ease regulations that have been imposed on banks since the 2008 financial crisis.

“Gruenberg's chairmanship ended late last year, but he has continued to lead the agency while Trump's nomination of Jelena McWilliams as FDIC chairwoman is pending before the Senate. McWilliams was approved by voice vote in committee, with only Sen. Elizabeth Warren (D-Mass.) opposed, but she has not yet received a floor vote.” Read more.

BOLTON DOUBLES DOWN ON EUROPE THREAT — POLITICO’s Rebecca Morin: “National security adviser John Bolton on Sunday carefully doubled down on … Trump’s threat that European countries could be sanctioned by the United States if they continue to be involved with Iran. ‘It’s possible,’ Bolton said during an interview on CNN’s “State of the Union.”

“Bolton’s statement came as he and Secretary of State Mike Pompeo tried to amplify the reasons behind the Trump administration’s deal to withdraw from the Iran nuclear agreement and explain how it will work, given that the international community, other than Israel and some Arab nations, has not jumped on board with the president. Both Bolton and Pompeo suggested they believed the great powers of Europe might eventually see the light.” Read more.

COMMENCEMENT SEASON — Here was IMF managing director Christine Lagarde at the Claremont McKenna event on graduating now versus ten years ago: “Think of what was done over the past decade. A great depression was prevented. More resilient economies and safer financial systems were built.

“And because of this work, you, the class of 2018, have more freedom to chart your own course. To graduate at this moment, in this time of prosperity and technological revolution, is an extraordinary gift. But it does come with strings attached.” Read more.

CRAZY READ OF THE DAY — Mediaite’s Caleb Ecarma: “After hedge fund D. E. Shaw & Co. fired their manager Daniel Michalow over allegations of inappropriate behavior, the employee penned a tell-all departure letter. One revelation made deep in the five-page missive was an interesting nugget: he lambasted the group’s employees for “Trump-bashing.”” Read more.

“The performances of the Dow and the S&P suggest the improvement in economic and corporate fundamentals has been accompanied by a derisking illustrated most vividly by the decline in market price-to-earnings ratios.” Read more.

MARKETS

ASIAN STOCKS MIXED — Bloomberg’s Cormac Mullen: “Asian stocks had a muted start to trading Monday after the biggest weekly advance since February last week. The ringgit weakened as Malaysian markets reopened, though less than anticipated by offshore trading in the wake of Wednesday’s unprecedented election result.

“Equities in Japan and Australia were little changed while those in South Korea edged higher. U.S. futures pointed to gains after stocks closed slightly higher Friday, capping their best week in two months amid growing conviction that inflation will remain contained. Signs of easing trade tensions may also help. The dollar was steady, and yields on 10-year U.S. Treasuries remained below 3 percent.” Read more.

U.S. RETREAT FROM TRADE DEAL THREATENS DOLLAR — WSJ’s Chelsey Dulaney and Joshua Zumbrun: “Trade friction is emerging as the latest threat to the U.S. dollar’s position at the heart of the global financial system. For decades, central banks have held the bulk of their foreign-exchange reserves in the dollar, reflecting the dominant role the U.S. and its currency have played in global trade. As the U.S. pulls back from partnerships while countries like Mexico and Japan strike their own trade deals, the dollar’s dominance could be undermined …

“Though a less U.S.-centric trade system would take years to fully evolve, it would have significant implications for global central bankers charged with allocating some $11 trillion in reserves. Many are now ramping up investment in such currencies as the euro and Chinese yuan, reflecting the effects of such moves as the U.S. retreat from the North American Free Trade Agreement and Trans-Pacific Partnership.” Read more.

As it is, the dollar is treading water — Reuters: “The dollar head steady on Monday, its recent rally running out of steam on the back of sagging U.S. yields as investors wound back expectations that the Federal Reserve will launch a series of quick rates hikes.

“The dollar index against a basket of six major currencies was little changed at 92.520. The index hit a 4-1/2-month high of 93.416 last Wednesday, as a rise in U.S. Treasury yields highlighted the wide interest rate gap between the United States and other countries. However, it drifted lower after soft April U.S. consumer price data curbed the prospect of aggressive rate hikes.” Read more.

FLY AROUND

FEDERAL TAX CUTS LEAVE STATES IN A BIND — NYT’s Ben Casselman: “The federal tax overhaul cut taxes for millions of American families and businesses. But the law also had an unintended effect: raising the state-tax bite in nearly every state that has an income tax. Now, governors and state legislators are contending with how to adjust their own tax codes to shield their residents from paying more or, in some cases, whether to apply any of the unexpected revenue windfall to other priorities instead.

“The Tax Cuts and Jobs Act, which … Trump signed into law in December, did not directly affect state budgets. It cut federal tax rates, but also made other changes that mean more income will be subject to taxation. Because most states use federal definitions of income and have not adjusted their own rates, the federal changes will have big consequences for both state budgets and taxpayers.” Read more.

BLACKROCK TO KEEP FEES DESPITE KASICH DONATION — Reuters’ Trevor Hunnicut: “BlackRock Inc. can keep fees from the state of Ohio despite a donation one of its top executives made to Governor John Kasich’s U.S. presidential campaign, according to a preliminary ruling late on Friday by a securities regulator. Mark Wiedman, a senior managing director for the world’s largest asset manager, donated $2,700 to Kasich’s unsuccessful campaign when the politician was seeking the Republican Party nomination in 2016, according to public records. The money was later returned.

“A federal securities rule prohibits companies’ executive officers from making donations to government officials who could influence the hiring of a fund manager and then providing asset management services to those governments for a fee. The ban is in effect for two years after the contribution is made.” Read more.

IS $3 GAS BAD NEWS FOR THE ECONOMY? — WSJ’s Stephanie Yang and Alison Sider: “Drivers gearing up for trips this summer face escalating prices at the gasoline pump, an early sign that $70-a-barrel oil is starting to reach into consumers’ wallets. Average U.S. retail gasoline prices are climbing toward $3 a gallon, the most expensive in more than three years. The national average was around $2.86 at the end of last week. In states such as California and Washington, prices have already breached the $3 level after rising 24 percent and 17 percent, respectively, from a year ago.

“Economic growth has boosted demand for oil. If that growth continues, most consumers should be able to afford to pay more to fill up their tanks. But conflicts in oil-producing regions could mean even higher gas prices, posing a threat to U.S. growth as the cost of fuel and gasoline weighs on drivers, airlines, delivery companies and other big consumers.” Read more.

HSBC CLAIMS FIRST TRADE-FINANCE DEAL WITH BLOCKCHAIN — FT’s Don Weinland: “HSBC has completed the world’s first commercially viable trade-finance transaction using blockchain, opening the door to mass adoption of the technology in the $9tn market for trade finance. The UK-based bank said the blockchain trade, which processed a letter of credit for US food and agricultural group Cargill, had shown the platform was ready to be commercially adopted across the industry.

“The introduction of blockchain, which underlies cryptocurrencies such as bitcoin, is expected to shake up the centuries-old trade-finance industry, reducing the numerous documents and several days of processing needed for a single transaction to a paperless task that can be completed in hours. The distributed ledger technology behind Blockchain has the potential to be used for encrypted and unhackable record-keeping across a range of industries, from property registration to medical records and insurance claims.” Read more.

** A message from SIFMA: Did you know financial decision-making skills decline as we age? Unfortunately, financial exploitation of older adults is a serious and growing issue with devastating impact.

A New York State report found that 2/3 of all financial exploitation was committed by family members. Seniors can often lose the entirety of their retirement savings, leaving them unable to maintain independence and coping with significant stress and health impacts. As our country ages - 18% of the nation’s population will be 65+ by 2030 - the scope of this problem can only grow.

It is vital that we protect senior investors from financial exploitation. SIFMA is working with industry members, academics, and state and federal policymakers to advance policies, regulations and resources which enhance senior investor protections. Learn how you can make a difference at www.sifma.org/seniors. **

About The Author : Ben White

Ben White is POLITICO Pro's chief economic correspondent and author of the “Morning Money” column covering the nexus of finance and public policy.

Prior to joining POLITICO in the fall of 2009, Mr. White served as a Wall Street reporter for the New York Times, where he shared a Society of Business Editors and Writers award for breaking news coverage of the financial crisis.

From 2005 to 2007, White was Wall Street correspondent and U.S. Banking Editor at the Financial Times.

White worked at the Washington Post for nine years before joining the FT. He served as national political researcher and research assistant to columnist David S. Broder and later as Wall Street correspondent.

White, a 1994 graduate of Kenyon College, has two sons and lives in New York City.

About The Author : Aubree Eliza Weaver

Aubree Eliza Weaver is a deputy production director for POLITICO Pro, having previously served as a senior web producer. Aubree also co-authors Morning Money, POLITICO's daily morning newsletter on Washington and Wall Street.

She graduated from Le Moyne College in her hometown of Syracuse, N.Y., where she was the editor-in-chief of the school’s newspaper, The Dolphin. As a student, she interned with Time Warner Cable’s Syracuse affiliate, YNN, as a news broadcast intern. Aubree moved to D.C. upon graduating in 2013 to work as a summer program adviser for the Institute on Political Journalism. She was a student in the program in the summer of 2011, when she first fell in love with D.C.